BOJ chief economist expects Japan to move into expansionary phase

May. 18, 2015, 3:21 am

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By Stanley White

TOKYO (Reuters) – Japan’s economy is likely to shift to an expansionary phase this fiscal year due to improvements in domestic demand, exports and a windfall from last year’s decline in oil prices, the Bank of Japan’s chief economist said.

Japan can continue to exceed its potential growth rate, which is from zero to 0.5 percent, as household spending and consumer sentiment improve, according to Eiji Maeda, head of the research and statistics department at the BOJ.

The BOJ is likely to meet its goal of guiding inflation to 2 percent in the first half of fiscal 2016, so there is no need to ease policy further now, Maeda also said.

“The output gap has returned to its 10-year average and could rise above the average,” Maeda said at a seminar.

“I expect the economy to move from recovery to an expansionary phase.”

Data due this week is likely to confirm that Japan is still slowly recovering from a surprise recession last year, and if growth fails to pick up policymakers could come under pressure to take steps to stimulate the economy.

Japan’s economy is expected to have grown 0.4 percent in January-March, unchanged from the prior quarter, according to a Reuters poll of economists. The Cabinet Office will release the data on Wednesday.

The BOJ also holds a two-day meeting ending Friday

Some economists are worried that growth may not accelerate as data on consumer spending was lackluster at the start of this year.

Maeda was more optimistic, however, noting that some measures of retail sales have recently shown signs of strength and that the housing market is starting to pick up.

Falling oil prices will also shave more than 10 trillion yen ($83.6 billion) from Japan’s energy import bill, which is larger than an 8 trillion yen hit inflicted by a sales tax increase last year, he said.

Japan is near full employment, which will put upward pressure on wages and ensure that the BOJ meets its inflation target, Maeda said.

Maeda also added that the BOJ would not hesitate to adjust policy if it deemed necessary but inflation expectations remain firm, suggesting that changes to monetary policy are not imminent.

Chinese officials will be able to manage their slowing economy, but other overseas economies could pose downside risks to Japan’s outlook, Maeda said.

($1 = 119.6700 yen)

(Editing by Chris Gallagher and Simon Cameron-Moore)

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